Yahoo Finance We Think Ardiden (ASX:ADV) Might Have The DNA Of A Multi-Bagger
If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, the ROCE of Ardiden (ASX:ADV) looks great, so lets see what the trend can tell us.
Understanding Return On Capital Employed (ROCE)
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Ardiden, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.37 = AU$16m ÷ (AU$42m - AU$347k) (Based on the trailing twelve months to June 2023).
Thus, Ardiden has an ROCE of 37%. That's a fantastic return and not only that, it outpaces the average of 9.1% earned by companies in a similar industry.
Check out our latest analysis for Ardiden
Historical performance is a great place to start when researching a stock so above you can see the gauge for Ardiden's ROCE against it's prior returns. If you're interested in investigating Ardiden's past further, check out this free graph of past earnings, revenue and cash flow.
What The Trend Of ROCE Can Tell Us
Ardiden has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 37% which is a sight for sore eyes. Not only that, but the company is utilizing 201% more capital than before, but that's to be expected from a company trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.
What We Can Learn From Ardiden's ROCE
Long story short, we're delighted to see that Ardiden's reinvestment activities have paid off and the company is now profitable. And since the stock has fallen 20% over the last five years, there might be an opportunity here. With that in mind, we believe the promising trends warrant this stock for further investigation.
On a final note, we found 4 warning signs for Ardiden (1 can't be ignored) you should be aware of.
If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
